A coalition of more than 70 Japanese organizations has decided to develop their own blockchain-backed digital currency.
The Digital Currency Forum is the organization behind the currency, which has been dubbed DCJPY for the time being. Four private banks, telcos, railway operators, and industrial behemoths such as Mitsubishi are among the Forum’s members. Observer status is held by Japan’s central bank, Financial Services Agency, and three relevant ministries.
The Forum has released a white paper [PDF] outlining how users can “mint” DCJPY by transferring funds from a bank account to a digital currency account stored on a platform built and operated by Forum members. DCJPY holders could transfer the currency to other platform participants or “burn” it by transferring it to a bank account. Direct conversion of DCJPY to cash will not be possible at first. The minimum value of a DCJPY would be one Japanese Yen.
According to the white paper, DCJPY should be issued by banks and considered to create the same obligations as deposits, because that arrangement is already well regulated and should result in a faster implementation of a digital currency. The Forum also claims that by tying digital currencies to deposits, their value will be more stable.
One example is interoperability among existing stored value mechanisms. East Japan Railway Company, Japan’s largest railway operator, already allows holders of its “Suica” smart cards to use them to pay for items in railway stations and some smaller stores. However, as the white paper points out, such schemes are incompatible. Members of the Forum believe that a digital currency would address this issue while also allowing for innovation, such as allowing operators of stored value schemes to become payment players.
A second reason for the DCJPY is that there would be no competition with bank deposits by offering a digital currency issued by banks. The Forum also claims that a digital currency could speed up commercial transaction settlements and lower cash-handling costs.
The final argument in favor of the DCJPY is that a digital currency is the best mechanism for transacting smart contracts or paying for digital assets such as non-fungible tokens.
The Forum hopes that DCJPY tests can begin in 2022, but no date for full implementation has been set. Neither the Forum nor the Bank of Japan have explained how or if the DCJPY will be linked to Japan’s planned experiments with central bank digital currency.